OPINION
Why Africa cannot ignore credit ratings
By Mampho Modise
MAMPHO MODISE Post graduate researcher, University of Pretoria
Credit ratings provide an independent and objective assessment of the credit worthiness of countries and corporations
Three of the world’ s major ratings agencies, Moody’ s, Fitch and Standard & Poor’ s( S & P), are reviewing South Africa’ s credit rating. Mampho Modise explains the significance of the reviews.
What do the agencies look at in the process of reviewing a country?
In their rating methodologies, rating agencies have developed rating criteria for assessing the performance of key macroeconomic and socioeconomic indicators. By assessing the indicators, the rating agencies are able to determine the borrower’ s ability and willingness to honour debt obligations.
Rating criteria focus on the following components and indicators: Economic structure and performance: Real GDP, per capita income, headline inflation rate, gross investment as a percentage of GDP and gross domestic savings as a percentage of GDP. Government finances: Government revenue to GDP, government expenditure to GDP, gov- ernment debt to GDP, debt interest payment to revenue and the budget balance as a percentage of GDP. External payments and debt: Current account balance as a percentage of GDP, the ratio of external debt to GDP and level of official reserves. Susceptibility to event: Political risk,
socioeconomic risk, external vulnerability risk and institutional independence. When reviewing the sovereign ratings, rating agencies hold discussions with various stakeholders in government, labour, civil society and the private sector. The reason the private sector is included is for the rating
18 Business Times Africa | 2016